SECURITIES AND EXCHANGE COMMISSION
Investment Advisers Act of 1940
Release No. 1634 / May 28, 1997
Investment Company Act of 1940
Release No. 22685 / May 28, 1997
Administrative Proceeding File Number 3-9317
PUBLIC ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS INSTITUTED
AGAINST PARNASSUS INVESTMENTS, JEROME L. DODSON, MARILYN CHOU AND
DAVID GIBSON
The Securities and Exchange Commission has instituted public
administrative and cease-and-desist proceedings against: (1) Parnassus
Investments ("PI"), a registered investment adviser located in San
Francisco, California, which acted as the investment adviser to the
Parnassus Fund ("Fund), a mutual fund based in San Francisco; (2) Jerome L.
Dodson ("Dodson"), President and Director of PI and President and a Trustee
of the Fund; and, (3) Marilyn Chou ("Chou") formerly of Piedmont,
California and David Gibson ("Gibson") of San Francisco, California, who
were outside Trustees of the Fund (collectively, "Respondents").
The Order Instituting Proceedings alleges three main violations of the
federal securities laws. First, PI, Dodson, Chou and Gibson aided and
abetted and caused the Fund to overstate its Net Asset Value ("NAV") for
over two years -- from December 1990 to January 1993 -- by failing to value
in good faith the Fund's holding of Margaux, Inc. ("Margaux"), a thinly
traded security. The Order alleges that Respondents valued Margaux at the
identical price for the entire two years and ignored relevant pricing and
financial information about Margaux which should have led them to a lower
valuation. The overstated NAV caused redeeming shareholders to receive
more than they were entitled to, thereby diluting the holdings of remaining
shareholders, while purchasing shareholders paid more for Fund shares than
what they were actually worth. This violation also had the effect of
increasing the compensation PI received as investment adviser to the Fund.
Second, the Fund had a fundamental investment policy not to make loans
(except through repurchase agreements which are a type of short-term loan
fully collateralized by the value of the security which the borrower
transfers to the lender and agrees to repurchase). In violation of this
fundamental policy, PI and Dodson aided and abetted and caused the Fund to
make a $100,000 loan to Margaux shortly after Margaux filed for bankruptcy.
Finally, PI improperly used the Fund's soft dollar credits -- received
from the Fund's broker-dealer in return for routing the Fund's trades to
that broker for execution -- for the benefit of PI instead of the Fund and
its shareholders. Dodson caused and aided and abetted PI's improper soft
dollar use. PI also filed Forms ADV with the Commission, executed by
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Dodson, which failed to disclose PI's improper use of soft dollar credits.
A hearing will be scheduled to determine: (1) whether the Respondents
violated the laws as alleged; (2) whether a cease-and-desist order should
issue against the Respondents; and (3) whether civil penalties should be
imposed upon the Respondents.
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